Energy shock poses a consumer group price dilemma
16/04/2026 12:21
The author is a Reuters Breakingviews columnist. The opinions expressed are her own. By Aimee Donnellan LONDON, April 16 (Reuters Breakingviews) - When the economy slows, it's hard for consumer groups to escape unscathed. That's why shares in Unilever ULVR.L and Reckitt Benckiser RKT.L, makers of Dove soap and Lysol spray respectively, have collapsed 23% since the day before the start of the Iran war. The Gulf conflict has pushed up energy prices and prompted the International Monetary Fund to cut its global growth forecast on Tuesday. Yet for purveyors of food and other everyday essentials, the worst may be yet to come. Expect price hikes, falling sales volumes or weaker profitability. When the U.S. and Israel attacked Iran in late February, investors first zeroed in on direct Middle East exposure. For consumer goods giants, that risk was contained: most derive only around 3% of sales from markets like Qatar, Saudi Arabia and the United Arab Emirates. But as the conflict dragged on and oil stayed close to $100, attention shifted to companies that lean heavily on emerging markets for growth, like Unilever and Reckitt. Developing countries made up 59% of Unilever's revenue last year. Reckitt is similarly exposed: among its so-called "power brands", or those it has the highest hopes for, 42% of sales come from emerging markets. The focus on developing-economy exposure makes sense. Many Southeast Asian countries, and India, are net importers of crude oil. Consumers there spend a relatively large proportion of income on food and fuel. The flipside is that companies with less exposure to these markets, like Nestlé NESN.S and Procter & Gamble PG.N, are better off in relative terms. The pair derive around three-quarters of sales from Europe and the Americas. Kraft Heinz KHC.O only relies on emerging markets for 11% of revenue. That trio's shares are therefore down roughly a tenth since the war started. Yet all of them may soon suffer from an increase in raw material expenses. The CEO of one food company told Breakingviews that he was considering emergency price increases in the near future to pass the higher costs on to customers. There's a problem with that strategy, however. Even before the war, consumer companies were hitting a wall on pricing. Branded goods are now 20–40% more expensive than before the pandemic, industry insiders reckon. Shoppers have started pushing back. In early February, PepsiCo's PEP.O U.S. foods boss Rachel Ferdinando announced price cuts of up to 15% following a consumer backlash. Nestlé's former Chair Paul Bulcke similarly admitted in 2024 that price rises had gone “too far”, after the company lost market share to cheaper rivals. It suggests a lose-lose proposition for consumer goods groups: either absorb rising costs and see margins suffer, or raise prices and see sales suffer. The unavoidable fact is that expenses are rising, and someone has to pay them. The pain may only just be starting for consumer-goods groups. Follow Aimee Donnellan on LinkedIn. CONTEXT NEWS Shares in Unilever are down 23% since February 27, the day before the U.S. and Israel launched attacks on Iran. Reckitt Benckiser's stock is down 23% also, while Nestlé, Kraft Heinz and Procter & Gamble are down 7%, 11% and 14% respectively. Meanwhile, the S&P 500 Index is up 2% over the same period. Consumer groups have trailed the wider stock market during Iran war https://www.reuters.com/graphics/BRV-BRV/jnpwrblyyvw/chart.png (Editing by Liam Proud; Production by Streisand Neto) ((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))